USD/JPY Breaks Below 155 Amid US Treasury Pressure and GPIF Speculation

The USD/JPY currency pair broke below 155 for the third time in recent weeks, marking a significant shift in market sentiment. According to MUFG Research, several factors have contributed to this change, including comments from US Treasury Secretary Scott Bessent on Japan's fiscal and monetary policies.

Bessent's remarks at the G20 press conference on September 1 suggested that Japan should move away from its reflationary policies, which was seen as a forceful statement. This coincided with the release of Japan's FY27 budget requests totaling JPY143tn, significantly higher than the initial budget for the current fiscal year.

Bessent also expressed confidence in the Japanese government and BOJ taking steps to strengthen the yen, further solidifying market expectations for a shift away from Japan's reflationary policies. The coordinated intervention at the end of July, which was reportedly undertaken at Japan's request, has also added weight to this perception.

A second factor driving the market's expectations is growing speculation about a change in the Government Pension Investment Fund's asset allocation. GPIF's Board of Governors meeting on August 21 included discussions on the Basic Portfolio Review Project Team, sparking renewed expectations of changes to its portfolio. Even a 1% shift in GPIF's allocation would have a meaningful impact on markets.